2019 IRS ADVANCED EXAM TIPS - Impact America · SCENARIO #6 JENNIFER MORRISON-TAXSLAYER EXERCISE...

2019 IRS ADVANCED EXAM TIPS

HELPFUL TIPS FOR THE 2019 IRS ADVANCED CERTIFICATION EXAM

Some topics on the IRS VITA Volunteer Advanced Certification Exam will remain out of scope for SaveFirst Advanced volunteers. The certification exam is open-book and open-note. You should

consult the information below to aid you in responding to questions and scenarios in the IRS Advanced Certification Exam.

As a reminder, a SaveFirst Site Coordinator will prepare any of the below out of scope topics topics at the tax site.

SCENARIO #1 TAMERA DENNISON

➢ Refer to page E-8 for information about alimony. Since Tamera’s divorce was finalized before Dec 31 2018, she can include the alimony paid as an adjustment and her ex-spouse will need to include it in income.

➢ Use page C-3 to determine Tamera’s dependents, looking at the questions for both Kimberly and Christian. Remember that her daughter is 18, so she meets the age test on page C-3 and that anyone that can be claimed as a dependent can’t claim any dependents. That means that if Kimberly can be claimed by Tamera, then Kimberly cannot claim Christian.

➢ Then use page B-8 to determine the filing status. ➢ Use page I-3 and I-4 to determine eligibility for the EIC. Remember, the individual that can

claim the dependency exemption gets to claim the EIC, so if Tamera can claim both Kimberly and Christian, and they both meet the EIC tests, then Tamera can claim them both for EIC.

SCENARIO #2 CHARLIE AND SAMANTHA COLLINS

➢ First, use the dependency chart on page C-3 to determine if Charlie and Samantha can claim their children as dependents. Remember that even though Harry is not a U.S. citizen he is a U.S. resident alien for dependency (step 4).

➢ The Child Tax Credit (page G-2) is 2,000 per child and it is nonrefundable. The children must meet the tests to be qualifying children for the child tax credit-found on page G-2.

o Be under age 17 at the end of the year o Be a U.S. citizen, national, or resident alien o Be claimed as your dependent

2 SAVEFIRST |HELPFUL TIPS FOR OUT OF SCOPE TOPICS ON THE 2019 IRS ADVANCED CERTIFICATION EXAM

▪ Must be son or daughter, adopted child, stepchild, eligible foster child, or a descendant of any of them (for example, grandchild)

▪ Or brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew)

o Must have a valid social security number by the due date of the return.

➢ Dependent children that do not have a SSN are eligible for the credit for other dependents (page G-4)

➢ The Credit for Child and Dependent Care Expenses credit (page G-11) is available to all qualifying children dependents, regardless of ITIN.

SCENARIO #3 GAIL BAKER

➢ First, determine if Tony is Gail’s dependent. Pay attention to footnote 3 on page C-8. Since Tony’s social security benefits are considered to be support provided by him, he is providing more than half of his support.

➢ Tony’s gross income is 10,000 since the 5,000 of Social Security is not included in gross income. Check the Filing requirement on page A-1. He would file as single and under 65. Is his gross income under the filing requirement listed?

➢ Even though Tony can’t be Gail’s dependent, there is no support test for EIC. go through the questions on I-4 to see if Tony meets all the tests.

SCENARIO #4 SANDRA CLARK

➢ First, use the dependency chart on page C-3 and C-4 to determine if Debbie can be claimed as a dependent.

➢ if Debbie can’t be claimed as a dependent, Debbie and Sandra’s premium tax credit must be split up over their returns. This is shared policy allocation, which makes both returns out of scope for our tax site.

SCENARIO #5 ARCHIE HAMILTON

➢ Look at the note at the bottom of page F-6 of the Pub 4012. The % changed from 7.5% in 2018 to 10% in 2019.

➢ Look at the note at the top of page F-7 of the Pub 4012. There is a limit to the total deduction for taxes.

➢ The TCJA removed the category of miscellaneous expenses. This means that tax prep fees no longer qualify for itemization. Investment expenses also never qualify. Gambling losses are allowed up the amount of winnings. He lost 250 which is less than 1,000 so he can deduct the gambling losses.

HELPFUL TIPS FOR OUT OF SCOPE TOPICS ON THE 2019 IRS ADVANCED CERTIFICATION EXAM |SAVEFIRST 3

SCENARIO #6 JENNIFER MORRISON-TAXSLAYER EXERCISE REQUIRED

Dependents and Filing Status:

➢ Use the Pub 4012 to determine the Dependents (C-3 and C-4) and filing status (B-8).

Create the return in TaxSlayer Practice Lab:

➢ Choose filing status, enter personal information, and dependents.

Enter the In Scope Topics from this exercise:

➢ W-2 from Gilmer Elementary School ➢ 1098-T from Yuma College ➢ 1095-A and health insurance ➢ Child and Dependent Care Credit-Busy Bee Day Care ➢ EIC Disallowance (see screenshot below) ➢ Educator Expenses adjustment ($350-capped at $250)

Out of Scope Topics from this exercise:

➢ 1099-C from Prairie Bank ➢ There are very detailed screenshots below that will guide you through entering the above topics.

**REMINDER** you will not be allowed to enter these at the tax site, but you should follow the instructions for entering them in TaxSlayer to get the right answer for the test!

Form 1099-C

➢ Federal Section→ Income→ Other Income→ Cancellation of Debt Form 1099-C ➢ Make the following entries:

➢ Remember,1099-C income is OUT OF SCOPE for advanced volunteers at SaveFirst tax sites, and you will need to see a site coordinator. You will only need to enter this in for the sake of this test.


EIC Disallowance

➢ When a taxpayer has had their EIC disallowed and they are past the period of disallowance (2 years) they must fill out form 8862 in order to claim the EIC again. Otherwise the return will get rejected.

➢ Go to Federal Section→ Deductions→ Credits→ Claiming Refundable Credits after disallowance Form 8862→ Information to Claim Certain Refundable Credits After Disallowance→ Claim EIC after disallowance

➢ for child one→ enter “365” days and “Use my Main Address” ➢ for child two→ enter “365” days and “Use my Main Address” ➢ Click “Continue”

Exam Question Tips

➢ The routing number is the first set of numbers listed on the check. ➢ Remember, there is a limit for educator expenses (see note above). ➢ You can find the amount of the Child and Dependent Care Credit by going to

“Summary/Print” and going to schedule 3 nonrefundable credits and finding the line “Credit for Child and Dependent Care Expenses”.

➢ The total amount of qualified education expenses is going to be the amount of payments received for tuition in box 1 ($7,200) minus the scholarship amount in box 5 ($4,200) plus any additional qualified expenses. For the American opportunity credit, you can include the costs of textbooks. Look at the statement from Yuma College and you will see she paid $650 for books.

➢ Entering the 1095-A will produce the Form 8962 in the software, which reconciles the PTC. ➢ You can see if Jennifer qualifies for the retirement savings credit form 8880 by looking at

“Summary/Print” and going to Schedule 3 for Nonrefundable Credits and looking at the line “Retirement Savings Contribution Credit”.

➢ Cancelled debt from Form 1099-C for nonbusiness credit card will always need to be entered on the tax return.

➢ See notes above about EIC disallowance.

SCENARIO #7 MARK AND BARBARA MATTHEWS-TAXSLAYER EXERCISE REQUIRED







➢ W-2 from Conway Company ➢ 1099-R from Essex Bank, Custodian for Roth IRA

o This 1099-R has a code Q for the distribution code. o This means that the distribution is nontaxable. You only need to enter in this 1099-R

exactly as it appears. ➢ SSA-1099 for Mark ➢ 1099-INT from Adelphi Bank and Trust

➢ Health Insurance Section-they had full year coverage NOT from the marketplace. ➢ 1099-DIV from ABC Investments (on page 1 of 2 from ABC, you enter the 1099-DIV

information just like you would a normal 1099-DIV statement).

Out of Scope Topics from this exercise:

➢ Form 1099-R from Pine Corporation with no taxable amount in box 2a ➢ Form 1099-B from ABC Investments (page 2 of 2) ➢ There are very detailed screenshots below that will guide you through entering the above topics.

**REMINDER** you will not be allowed to enter these at the tax site, but you should follow the instructions for entering them in TaxSlayer to get the right answer for the test!

Form 1099-R with no taxable amount in box 2a

➢ Form 1099-Rs with no taxable amount in box 2a require you to perform what is known as the Simplified Method to determine the taxable amount.

➢ To complete the simplified method, enter in the Form 1099-R just as you normally would. ➢ After you have entered copied over all of the boxes from the actual 1099-R, click on the

highlighted text right under box 2a that says “Do you need to calculate your taxable amount? Click here for options.”

➢ Then click begin on the box that says “Simplified Method Worksheet,” then continue past the “Simplified Method Qualification Menu.”

➢ You will need to make the following inputs in the following boxes o Plan Cost at the annuity start date

▪ Type in $14,500, the amount from box 9b of the 1099-R o Starting date of annuity

▪ 03/01/2017, the day Mark retired o Check here if this is a joint or survivor annuity—> Check the box o Age of recipient

▪ Type in “126” ▪ Since this is a joint annuity, this is the sum of the ages of both Mark and Barbara

at time of retirement o Number of months paid in 20XX

▪ Enter “12” o Amounts previously recovered

▪ Enter “1,029”


o Leave the “Public Safety Officer Exclusion” box blank and press continue ➢ After you have completed these steps, your taxable amount in box 2a should be $21,971

➢ Remember, 1099-R forms requiring the simplified method are out of scope for advanced volunteers at SaveFirst tax sites. You will only need to enter this in for the sake of the test.

Form 1099-B from ABC Investments ➢ A form 1099-B indicates that the taxpayer sold stock during the tax year, and the proceeds from

that sale must be reported on the tax return as income. ➢ Each sale of stock has to be reported in the tax software individually ➢ To enter these items in TaxSlayer first click begin on “Capital Gain and Losses Schedule D,” on

the Income Landing Page ➢ Then click “Begin” next to “Capital Gain and Loss Items” ➢ Then enter in each sale of stock from the 1099- B ➢ For the Idaho Co Common Stock, follow the steps below:

o Since the form is issued to both Mark and Barbara, indicate that the form belongs to both of them

o Enter “Idaho Co” as the Description of Property o The date acquired is 02/01/2019, from box 1b o The date sold is 10/01/2019, from box 1c o The sales price is $1,700 and the cost basis is reported to the IRS o The cost is $2,189 o No other entries on this form are required, scroll down and click “Save & Enter Another”

➢ For the Iowa Co common stock, follow the steps below: o Again click Both as the form belongs to both of them.


o Enter “Iowa Co” as the description of the property o The date acquired is 06/15/1999, from box 1b o The date sold is 03/01/2019, from box 1c o The sales price is $4,600 and the cost basis is NOT reported to the IRS o The cost is $1,700


➢ Remember, Form 1099-B reporting sale of stock is out of scope for advanced volunteers at SaveFirst tax sites. You will only need to enter this in for the sake of the test.

Helpful Tips for Exam questions ➢ Remember, state refunds are only taxable if the taxpayer itemized on the federal return, and

deducted state income tax on the federal return. ➢ You can find the taxable interest one line 2b of the 1040 on “Summary/Print”. ➢ You can find the total capital gain on the “Summary/Print” page

➢ The simplified method is out of scope for advanced volunteers, but entering the information

above should have resulted in a taxable amount of $21,971( question 24) ➢ The full amount and taxable amount of social security benefits can be found on lines 5a and

5b of the 1040, respectively. ➢ A taxpayer can split their refund between up to three accounts by using form 8888.


➢ The total income tax withheld can be found on the Form 1040 on the “Summary/Print” page on the line labeled “Federal Income Tax withheld from Forms W-2 and 1099”.

SCENARIO #8 RAMON TORREZ-TAXSLAYER EXERCISE REQUIRED






➢ self-employment income (ride share driving see below) ➢ 1098-E Student Loan Interest for $3,600 ➢ IP Pin All of the income documents in this exercise are in scope for advanced volunteers at SaveFirst tax sites ➢ However, this exercise is confusing with all of the additional income and fees that need to be

added to the schedule C. ➢ After you add the 1099-MISC to the return and create the Sch C, you will need to add the

income from the 1099-K and the tip income from the interview notes. Go to the Sch C, then go to Income and you will add these two amounts to the “Gross Receipts or Sales” by clicking the icon to the right and adding the tip income and 1099-K income. See screenshots below for description and amounts.

10 SAVEFIRST |HELPFUL TIPS FOR OUT OF SCOPE TOPICS ON THE 2019 IRS ADVANCED CERTIFICATION

EXAM

➢ Next, you need to add the expenses to the Sch C. First add the category of “General

Expenses” o Under “Commission and Fees” you can enter individually the following qualified

expenses

o Under “Supplies” you can add the snacks for customers, auto deodorizers, and phone charges for customers.

➢ Next, you need to add the Car and Truck expenses category. The business miles =miles

while transporting (30,200) + miles between rides (5,830)


Helpful Tips for Exam questions ➢ If a taxpayer has any income related to the business on the schedule C, that income must be

reported on the Schedule C ➢ You can find the amount of Ramon’s mileage expenses deduction by looking at Part II line 9

of the Schedule C in Ramons’s PDF printout o You can also find this amount manually by multiplying his business miles(36,030) by

the standard mileage rate .58 cents and rounding to nearest whole number.

➢ You can find the student loan interest deduction by going to “Summary/Print” and go to

Schedule 1 and under “Adjustments” find “Student Loan Interest Deduction”. Remember that there is a limit to the deduction!

➢ Taxpayers who are self-employed must pay the self-employment tax in the Other taxes section of the 1040, but will receive half of that amount back as an adjustment on the 1040 Schedule 2.

➢ Self-employed taxpayers who are sole proprietors of their business are eligible to claim the Qualified Business Income (QBI) deduction to reduce their taxable income. Their QBI will not reduce the amount of the self-employment tax. This amount can be found on “Summary/Print” on the line directly below the standard deduction. If a taxpayer doesn’t have any taxable income (meaning the standard deduction already reduced it to 0) then there will be no deduction listed on the line directly below standard deduction labeled “Qualified Business Income Deduction”

➢ The TCJA states that the shared responsibility payment be $0 starting in tax year 2019. ➢ IP PINs are required for e-file, the PIN can be found on the paper printout of the 1040, and if

the return is submitted via paper file without the IP PIN then the IRS will take extra measures to authenticate identity before processing the return/refund.

➢ The reason for not getting the EIC can be found on page I-5 of the Pub 4012 “EIC Without a Qualifying Child” (hint: think about Ramon’s birthday) or you can see the reason on the “Summary/Print” page at the top with a green banner.

12 SAVEFIRST |HELPFUL TIPS FOR OUT OF SCOPE TOPICS ON THE 2019 IRS ADVANCED CERTIFICATION

EXAM

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2019 IRS ADVANCED EXAM TIPS - Impact America · SCENARIO #6 JENNIFER MORRISON-TAXSLAYER EXERCISE...

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